Statement of Financial position

THET HTAR NYEIN

 Table of contents
01 02 03
Definition Assets Liabilities
What is statement of financial
position? Why important?

04 05 06
Equity
Purposes & Uses ADV & DIS-ADV
 01
Definition
 What is statement of financial position?

A statement of financial position

(balance sheet) is a financial statement that
summaries a company’s assets (what it owns) , The statement of financial position also plays an
liabilities (what it owes), and equity (assets less important role when preparing your company’s
liabilities) on a particular date – usually at the end of annual accounts. It is one of three financial reports
a financial month or financial year. you must include, the other two being an income
statement (also known as a profit and loss
It shows the economic position of a statement) and a cash flow statement.
company on the date of the statement. So, it is an
essential tool for understanding the financial health
of your business, making financially sound decisions
to sustain and grow your company, and securing
capital from investors and lenders .
 Why important?
● In a corporation, a balance sheet lets
stakeholders know if the business is
solvent, meaning the value of its assets is
● A balance sheet once complete allows for
higher than the total of its liabilities. It can
financial analysis of a business. There are
also pinpoint areas where the company is
three types of financial analysis they are
underperforming.
comparative analysis, projected analysis,
and ratio analysis. Comparative analysis
compares figures from the same dates
each year. Projected analysis is done by
● Balance sheets help current and potential making balance sheets for the future for
investors better understand where their expected farm situations and analyzing
funding will go and what they can expect them to see probable trends. Ratio
to receive in the future. Investors analysis is used to measure the financial
appreciate businesses with high cash condition of one business against another .
assets, as this insinuates a company will
grow and prosper.
 02
Assets
 What is Assets?
An asset is a resource with economic
value that an individual, corporation, or country Fixed Assets
owns or controls with the expectation that it will Fixed assets are resources with an
provide a future benefit. expected life of greater than a year, such as plants,
equipment, and buildings. An accounting
Current Assets adjustment called depreciation is made for fixed
In accounting, some assets are referred assets as they age. It allocates the cost of the asset
to as current. Current assets are short-term economic over time. Depreciation may or may not reflect the
resources that are expected to be converted into cash fixed asset's loss of earning power.
or consumed within one year. Current assets include
cash and cash equivalents, accounts receivable,
inventory, and various prepaid expenses. Financial Assets
Intangible Assets Financial assets represent investments
Intangible assets are economic in the assets and securities of other institutions.
resources that have no physical presence. They Financial assets include stocks, sovereign and
include patents, trademarks, copyrights, and corporate bonds, preferred equity, and other,
goodwill. Accounting for intangible assets differs hybrid securities. Financial assets are valued
depending on the type of asset. They can be either according to the underlying security and market
amortized or tested for impairment each year. supply and demand.
 Explanation
• Depreciation and amortization are ways to calculate asset value over a period of time. Depreciation is the
amount of asset value lost over time. Amortization is a method for decreasing an asset cost over a period.

• A business has a $10,000 software license, which it expects will come to an end in five years. Using the
straight-line method, the amortization expense would be $2,000 per year for the next five years. At the end
of five years, the carrying amount of the asset will be zero.

• In accounting, impairment is a permanent reduction in the value of a company asset.

• An impaired asset is an asset valued at less than book value or net carrying value. In other words, an
impaired asset has a current market value that is less than the value listed on the balance sheet.
• Asset impairment is often confused with asset depreciation, which is a predictable and expected
occurrence as an asset ages or incurs wear and tear over the course of normal use. In contrast, asset
impairment reflects a more dramatic drop in asset value due to extenuating circumstances, such as changes
in regulations, market conditions, environmental conditions or technology advancements—any change
that renders the asset obsolete, less valuable or too damaged to use as intended.
 03
Liabilities
 What is Liabilities?
A liability is something a person or
company owes, usually a sum of money. Liabilities Non-Current (Long-Term) Liabilities
are settled over time through the transfer of Non-current liabilities are the debts a
economic benefits including money, goods, or business owes but isn’t due to pay for at least 12
services. months. They’re also called long-term liabilities.
Current (Near-Term) Liabilities Although payment may not be due within a year,
Ideally, analysts want to see that a it’s important a business doesn’t overlook its non-
company can pay current liabilities, which are due current liabilities.
within a year, with cash. Some examples of short- Noncurrent liabilities include
term liabilities include payroll expenses and debentures, long-term loans, bonds payable,
accounts payable, which include money owed to deferred tax liabilities, long-term lease
vendors, monthly utilities, and similar expenses. obligations, and pension benefit obligations. The
• Wages Payable portion of a bond liability that will not be paid
• Interest Payable within the upcoming year is classified as a
• Dividends Payable noncurrent liability. Warranties covering more
• Unearned Revenues than a one-year period are also recorded as
• Liabilities of Discontinued Operations noncurrent liabilities. Other examples include
deferred compensation, deferred revenue, and
certain health care liabilities.
 04
Equity
 What is Equity?
Equity, referred to as shareholders' equity (or owners' equity for privately held companies), represents the amount of money
that would be returned to a company's shareholders if all the assets were liquidated, and all the company's debt was paid off in the case of
liquidation.

Outstanding shares
This is the number of shares that have been sold to investors and not repurchased by the company. In other words, it is the total amount of shares
owned by a company’s investors.

Additional paid-in capital

This is the amount of money paid for shares in a publicly listed stock above their stated par value. That is the nominal price of a stock determined
at the time of its issue. Par value is usually the lowest price that a company will sell its shares for. Additional paid-in capital is the difference
between the par value and the actual price that each stock sold for.

Retained earnings
Retained earnings are the percentage of your company’s net earnings that were not paid to its shareholders as dividends. You can think of this as
the amount of profit a company has left after paying all its direct and indirect costs, taxes and dividends to shareholders. Companies often
save retained earnings to pay off debt or re-invest in the business.

Treasury stock
Treasury stock is the shares a company has bought back from existing shareholders. A company may decide to repurchase shares and set them
aside for a later time. For example, it could use them to raise funds for new opportunities, such as the acquisition of a competitor .
05
Purposes &
Uses
 Uses and Purposes
 Determine the company's ability to pay obligations.
 Measure credit and risk management
 Identify asset value
 Evaluate the ability to pay dividends
 Calculate the company's net worth
 Develop various ratio analyses and measure liquidity and
solvency
 Attract and retain talent
 Comply with legal obligations
06
ADV &
DIS_ADV
 ADV & DIS-ADV

Advantages Disadvantages
 Provides a snapshot of liquidity  it doesn't show growth over time, so it may
 Understand overall leverage, when not be best for predicting the future
comparing liabilities to equity  Is best used in conjunction with other
 Offers insight into a company's financial statements, not on its own
financial health on a single day  Depreciation or the type of accounting
 Comparison of results method may shift values on the balance
 Evidence in legal matters sheet, making it appear more profitable
 Secure debtors and lenders  Only in measures of money
 Money can change in value
Thank you.